House Committees Approve Bill to Create Department of Homeland
Security
7/10. Five House Committees with jurisdiction over HR 5005,
the Homeland Security Act of 2002, marked up the bill on Wednesday, July 10,
making minor changes.
The House International
Relations Committee amended and approved the bill by voice vote. The House Armed Services Committee amended and
approved the bill by voice vote. The House
Science Committee amended and approved the bill by voice vote. The House Judiciary Committee amended and
approved the bill by voice vote. The House
Ways and Means Committee amended and approved by a vote of 34 to 3.
The House Science Committee (HSC), which has jurisdiction over the National Institute of Standards and Technology (NIST),
amended the bill to block the transfer of NIST's Computer
Security Division (CSD) to the new Department of Homeland Security (DHS).
The Computer & Communications Industry
Association (CCIA) and Members of Congress who are active on technology
issues had opposed the move. See, related stories, below.
In addition, the House Science Committee voted to create a separate
Undersecretary for Science and Technology in the new DHS. See, HSC release.
More Committees are scheduled to mark up the bill on Thursday, July 11. Also,
the Select Committee on Homeland Security,
chaired by House Majority Leader Dick Armey
(R-TX), is scheduled to hold a hearing on July 11 at 10:00 AM, with top
administration officials testifying. The full House is scheduled to take up the
bill during the week of July 22.
16 Representatives Oppose Transfer of NIST Computer Security
Division to DHS
7/10. Rep. Bob Goodlatte (R-VA), Rep. Rick Boucher (D-VA), and other
Members of Congress wrote a letter to Rep.
Sherwood Boehlert (R-NY), the Chairman of the House Science Committee, opposing the
provision in HR 5005 that would move the NIST's Computer Security Division (CSD) to the
Department of Homeland Security.
The letter states that "While we support the Administration's efforts to
make our country more secure in the face of terrorist threats, we are concerned
that this provision, found in Section 202 of the President's proposal, would
unravel years of collaboration between the CSD and the private sector to enhance
the level of confidence in computer security practices. We are concerned that
this reduced collaboration would be counterproductive to the Administration's
goals by reducing confidence in American made IT systems thereby making our
critical infrastructure more vulnerable to terrorist attack."
Fourteen other Representatives also signed the letter, including Rep. Zoe Lofgren (D-CA), Rep. Anna Eshoo (D-CA), Rep. Tom Davis (R-VA), Rep. Jim Moran (D-VA), Rep. Ileana
Ros-Lehtiten (R-FL), Rep. Barney Frank (D-MA), Rep. Lamar Smith (R-TX), Rep.
Steve Horn (R-CA), Rep. Gerry Weller (R-IL), and Rep. Pete Sessions (R-TX).
CCIA Opposes Transfer of CSD to DHS
7/10. Ed Black, P/CEO of the Computer &
Communications Industry Association (CCIA), wrote a letter [2 pages in
PDF] to Rep. Sherwood Boehlert
(R-NY), the Chairman of the House
Science Committee, and other Members of Congress, in which he stated that
the Computer Security Division at the NIST
should not be transferred to the Department of Homeland Security, pursuant to HR 5005,
the Homeland Security Act of 2002.
He wrote that "fundamental liberties will be at risk if we are too zealous
in our pursuit of wrongdoers. We must avoid departmental incentives that
compromise core agency missions or, worse, traditional democratic values. We
believe the proposed transfer of the Computer Security Division from the
National Institute of Standards and Technology (NIST) to the proposed Department
of Homeland Security is one such action, and one we strongly urge you to oppose.
Such a transfer would transform NIST from a civilian agency known for assisting
the private sector into one in which law enforcement and national security
concerns are dominant."
He also wrote that the "NIST has distinguished itself through its expertise
in cryptography: the creation of codes crucial to safeguarding business,
government and personal assets from unauthorized access." However, he
continued that the National Security Agency
and the FBI have compromised the work of the
NIST in the past through such initiatives as the Clipper Chip and key recovery.
Black concluded that "law enforcement and national security sectors have a
checkered past with regard to NIST and computer security. Their interference in
NIST's mission has repeatedly compromised the private sector's confidence in the
Institute and seems certain to do so in the future if repeated. We believe the
last thing our nation needs now is a reprise of debates that were long ago
settled."
ACLU Says Cable Companies Will Control Access to Content on
Internet
7/10. The American Civil Liberties Union
(ACLU) released a report
[12 pages in PDF] regarding cable modem service providers. The ACLU report
argues that "the existence of the Internet as a free and neutral civic
space could come to an end", unless the government mandates open access to
cable Internet access facilities.
This ACLU report, in turn, references a much longer report [2.4 MB
in PDF] titled "Technological Analysis of Open Access and Cable Television
Systems", that was commissioned by the ACLU, and written by the Columbia Telecommunications Corporation (CTC).
The ACLU argues that while most people access the Internet today with phone
modems, most people will soon use cable modems. The report dismisses DSL service
as not being a viable competitive alternative to cable modem service. It does
not address other prospective broadband technologies. Hence, the ACLU argues
that cable companies will have dominance and monopoly power.
The ACLU further argues that cable companies will use this power to control
access to content. This, in turn, will restrict free speech. Citing the CTC
report, the ACLU argues that cable "providers can ``slow or block access to
certain sites on the Internet, such as those without financial arrangements with
the cable company’s ISP, or those with content considered objectionable for
political or competitive reasons,´´ even while they ``speed transmission to an
affiliated site (or a site that has paid the operator for the privilege of
special treatment).´´"
The ACLU adds that "At a time when many cable providers have assembled far
flung business empires on the premise that cross promotion and other ``synergies´´
will yield big profits, they will come under strong pressure to do the
equivalent. And what can be done in the commercial context could be done just as
easily to political content."
The National Cable Telecommunications Association
(NCTA) issued a release
in which it stated that "The ACLU offers no evidence whatsoever to show
that the provision by cable operators of high speed access to the Internet is
somehow stifling development of, or access to, any content on the Internet. All
of the Internet's content is a simple mouse click away for cable modem users.
Moreover, cable modem service has enriched the Internet experience for millions
of households and its high speed capability has stimulated the development of
new, innovative Internet content that never before existed. The FCC is currently
considering the regulatory status of cable modem service, and NCTA has filed
comments -- and will file reply comments -- showing at length why regulation of
the sort proposed by the ACLU is inappropriate."
FCC to Hold Spectrum Policy Workshops
7/10. The Federal Communications Commission's
(FCC) Spectrum Policy Task Force
announced that it will hold a series of four public workshop in August. See, FCC
notice [PDF]. On August 1 it will hold a workshop titled "Experimental
Licenses and Unlicensed Spectrum". On August 2 , it will hold a workshop
titled "Interference Protection". On August 5, it will hold a workshop
titled "Spectrum Efficiency". On August 9, it will hold a workshop
titled "Spectrum Rights and Responsibilities". All workshops will be
held from 9:00 AM to 3:00 PM in the FCC's Commission Meeting Room, 445 12th
Street, SW.
Groups Comment on Broadcast Flag Standard
7/10. The Center for Democracy and Technology
(CDT), Consumers Union, and Public Knowledge sent a memorandum [13 pages in PDF] to the
House Commerce Committee
regarding the Broadcast Protection Discussion Group's (BPDG) Final Report on the
protection of digital television, and the "broadcast flag" standard.
These groups concluded that "we believe that serious questions remain as to
whether the broadcast flag proposal will be sufficiently effective. Congress
should seek assurance that it will not have adverse consequences on consumers,
including their ability to use their existing products, their ability to
exercise legal and reasonably expected fair uses of content, and their
access to future innovative technologies that might allow them to manipulate
content in creative ways that are legal under copyright law."
People and Appointments
7/10. David Sutphen was named VP and Legislative Counsel for Governmental
Relations at the Recording Industry Association
of America (RIAA). He was previously counsel to Sen. Ted Kennedy (D-MA), handling
intellectual property, antitrust and privacy issues before the Senate Judiciary
Committee. Before that, he was Chief of Staff for Rep. Harold Ford (D-TN).
More News
7/10. President Bush sent a brief memorandum
to the heads of executive departments and agencies that urges "cross agency
teamwork, using E-Government to create more cost effective and efficient ways to
serve citizens."
7/10. The House Commerce Committee's
Subcommittee on Telecommunications and the Internet held a hearing titled
"Corporation for Public Broadcasting Oversight and a Look Into Public
Broadcasting in the Digital Era". See, prepared testimony of witnesses: Robert
Coonrod (Corporation for Public Broadcasting), Pat
Mitchell (Public Broadcasting Service), Kevin Klose (National Public Radio),
Andrea
Lafferty (Traditional Values Coalition), John
Lawson (Association for Public Television Stations), Michael
Willner (Insight Communications), and Laura
Walker (WYNC-FM).
7/10. Qwest Communications stated in a release
that "it was informed by the U. S. Attorney's office in Denver yesterday
afternoon that it had begun a criminal investigation of Qwest. The U.S.
Attorney’s office did not disclose the subject matter of the investigation.
Qwest plans to fully cooperate with the U.S. Attorney's office."
7/10. California Governor Gray Davis signed AB
2033, sponsored by Assemblyman Robert Pacheco (R - Walnut). This bill amends
the Evidence Code to allow admission of certain "nonerasable optical image
reproduction or any other reproduction of a public record by a trusted system,
as defined in Section 12168.7 of the Government Code, if additions, deletions,
or changes to the original document are not permitted by the technology".
The bill further provides that "This act shall become operative on the date
the Secretary of State adopts uniform standards for storing and recording
permanent and nonpermanent documents in electronic media, as required by Section
12168.7 of the Government Code."
7/10. California Governor Gray Davis signed AB
2831, sponsored by Assemblyman Joseph Simitian (D - Palo Alto), which
pertains to the communication of clinical laboratory test results via the
Internet or e-mail.
7/10. The House Commerce Committee's
Subcommittee on Commerce, Trade, and Consumer Protection amended and approved HR 5058,
The Financial Accounting Standards Board Act. The Subcommittee approved an En
Bloc Amendment offered by Rep.
Clifford Stearns (R-FL), as amended by and amendment
by Rep. John Dingell (D-MI).
House Passes Tech Talent Act
7/9. The House passed HR 3130,
the Tech Talent Act, by a voice vote. The bill would authorize the appropriation
of $25 Million for FY 2002 for the National
Science Foundation (NSF) for a grant program intended to increase the number
of college students pursuing degrees in science, mathematics, engineering, and
technology.
Sherwood Boehlert (R-NY) said in
his statement
during the floor debate on the bill that "The problem is that fewer and
fewer American college students are majoring in mathematics, engineering,
technology, or science, particularly in the physical sciences. This is a source
of growing concern for many reasons. First, and most obviously, the nation needs
to constantly replenish its supply of scientists, mathematicians and engineers
to have a workforce that can compete in this increasingly technological
world."
He continued that the bill "takes aim at this problem directly by providing
incentives for colleges and universities -- including community colleges -- to
increase the number and quality of science, math, engineering and technology
majors. Under the bill, the National Science Foundation (NSF) would provide
grants to improve undergraduate science, math and engineering education that are
contingent on the grantee increasing the number of graduating majors in those
fields by a specific amount, without reducing quality."
Rep. Lamar Smith (R-TX), a
cosponsor of the bill, stated that "This legislation will encourage more
students to pursue science and mathematics studies. We need knowledgeable
students today, for successful high tech companies tomorrow."
Federal Circuit Rules on Public Use and On Sales Bars to
Patentability
7/9. The U.S.
Court of Appeals (FedCir) issued its opinion [MS Word] in Netscape
v. Konrad, a patent case involving what constitutes a
"public use" and "on sale" for the purposes of the Section
102 conditions for patentability. In this case, the holder of patents for
systems that allow a computer user to access and search a database residing on a
remote computer had demonstrated his claimed invention more than one year before
the key patent filing date.
Background. Allan Konrad is the holder of U.S. Patent Nos. 5,544,320,
5,696,901,
and 5,974,444,
each of which is titled "Remote information service access system based on
a client server service model". The ’320 patent, Konrad’s first issued
patent, is a continuation of an application filed on January 8, 1993. The ’901
patent is a continuation of the ’444 patent application, which is a
continuation of the ’320 patent application. Hence, the earliest filing date
that Konrad is entitled to is January 8, 1993. This, in turn, makes January 8,
1992, the critical date for Section 102 analysis.
Konrad's problem is that he engaged in several activities prior to this date.
First, he demonstrated the claimed invention to two University of California
computing personnel, without imposing any obligation of confidentiality. Second,
he demonstrated the high energy physics remote database object to the Stanford
Linear Accelerator Center, again, without a confidentiality condition. Third, he
offered to create the high energy physics remote database object system for the
University Research Association Superconducting Super Collider Laboratory in
exchange for four months full time employment or no more than $48,000.
Statute.35
U.S.C. § 102 provides, in part, that "A person shall be entitled to a
patent unless ... (b) the invention was patented or described in a printed
publication in this or a foreign country or in public use or on sale in this
country, more than one year prior to the date of the application for patent in
the United States".
District Court. Netscape filed a complaint in U.S. District Court (NDCal) against
Konrad seeking judgment of invalidity, noninfringement, and unenforceability.
The District Court held that the three patents are invalid under the public use
and on-sale bars of 35 U.S.C. § 102(b).
Appeals Court. The Appeals Court affirmed. It first noted that
"Public use includes ``any use of [the claimed] invention by a person other
than the inventor who is under no limitation, restriction or obligation of
secrecy to the inventor.´´". However, it also noted that "The law
recognizes that an inventor may test his invention in public without incurring
the public use bar. ``Experimental use negates public use; when proved, it may
show that particular acts, even if apparently public in a colloquial sense, do
not constitute a public use within the meaning of section 102.´´"
(Citations omitted.)
The Court elaborated that the circumstances that the Court should consider in
determining whether there was a public use include "the nature of the
activity that occurred in public; the public access to and knowledge of the
public use; whether there was any confidentiality obligation imposed on persons
who observed the use; whether persons other than the inventor performed the
testing; the number of tests; the length of the test period in relation to tests
of similar devices; and whether the inventor received payment for the
testing".
The Court held that since Konrad did not make the two university employees to
whom he demonstrated the invention aware of any confidentiality requirement,
this demonstration constituted a public use. Similarly, the Court held that his
failure to make the demonstration attendees at the Stanford Linear Accelerator
Center aware of any confidentiality requirement made this event a public use.
Finally, the Court held that his offer to make the high energy physics remote
database object for four months full time employment or no more than $48,000
constituted a commercial offer for sale.
Rep. Barcia Introduces NIST Authorization Bill
7/9. By Rep. James Barcia (D-MI) and
13 other Democrats introduced HR 5074, a bill to authorize appropriations for
the National Institute of Standards and
Technology (NIST) for FY 2003, 2004, and 2005. The bill was referred to the House Science Committee.
Rep. Barcia wrote in extended remarks submitted for the Congressional Record
that this bill, among other things, "provides funding for the Advanced Technology Program and addresses
Administration concerns about the program. First this bill provides a stable
funding base for the ATP by providing sufficient funds to allow for $60.7
million in new awards to be made in each fiscal year. In addition, the bill
authorizes four policy changes to the ATP that were proposed by Secretary Evans.
The bill makes Secretary's proposed changes to (1) allow universities to lead
joint ventures, (2) allow universities and non-profit laboratories to be
invested with intellectual property, (3) stress that ATP does not support
product development, and (4) allows for private sector experts to participate in
the ATP project review process." See, Cong. Rec., June 9, 2002, at Page
E1222.
House Commerce Committee Holds Hearing on DHS Bill7/9. The House Commerce
Committee's Subcommittee on Oversight and Investigations held a lengthy
hearing on HR 5005,
President Bush' proposal to create a Department of Homeland Security. Witnesses
disagreed sharply over the language in the bill that would create a new Freedom of Information Act
(FOIA) exemption for information provided voluntarily to the federal government
regarding infrastructure vulnerabilities, including cyber security matters.
The Commerce Committee is just one of many House committees with jurisdiction
over the bill. They are operating under a fast track schedule that requires
completion this week. Rep. Billy Tauzin
(R-LA), the Chairman of the Commerce Committee, said at his Committee's hearing
that "our deadline is July 12, and we are going to meet it."
The various House committees with jurisdiction are marking up the bill, mostly
on Wednesday and Thursday. See, TLJ Calendar, at right. Then, a special
committee, chaired by House Majority Leader Richard
Armey (R-TX), will have final consideration of the House bill.
The Commerce Subcommittee's marathon hearing including testimony from six panels
of witnesses. It covered chemical, biological, nuclear, cyber, and other threats
to homeland security. Subcommittee members and witnesses were in widespread
agreement with the underlying premise of the bill -- that numerous government
entities related to homeland security which are now spread around various
government agencies, should be merged into one department. However, there was
discussion about some of the details of implementation.
There was also sharp disagreement among certain witnesses on one key issue --
information sharing regarding threats to critical infrastructures. In
particular, witnesses differed on whether to create a FOIA exemption to incent
companies to provide information to the federal government.
Section 204 of the bill, as introduced, provides, in full, that
"Information provided voluntarily by non-Federal entities or individuals
that relates to infrastructure vulnerabilities or other vulnerabilities to
terrorism and is or has been in the possession of the Department shall not be
subject to section 552 of title 5, United States Code."
Rep. Tauzin discussed how September 11 ringleader Mohamed Atta sought a loan for
a crop dusting airplane, and an aerial map of Washington DC. "That map
represented to him, obviously, a source of information upon which he might plan,
or his friends, might plan an attack upon this city. It calls to our attention
the importance in this legislation of amending the Freedom of Information Act to
make sure that road maps, vulnerability assessments, of assets, both public and
private, other road maps of sensitive installations, and sensitive places in
this country, are not so easily available to people who might have improper
motives, such as Mr. Mohamed Atta, and using those roads to hurt this country or
its people. Balancing the needs of freedom of information in this country ... is
going to be a difficult challenge for this Committee of Congress ..."
The fourth panel of witnesses to testify before the Committee included five
representatives of industry, all of whom argued for the necessity of enacting
the new FOIA exemption. See, prepared testimony of Guy
Copeland (VP of Computer Sciences Corporation, testifying on behalf of the Information Technology Association of America), William
Smith (EVP, Network Operations, BellSouth),
Kenneth
Watson (Cisco Systems), Lynn
Costantini (North American Electric Reliability Council), and John
Sullivan (Boston Water and Sewer Commission).
BellSouth's William Smith stated that "we have received numerous requests
for sensitive information -- such as lists of critical facilities -- from
federal, state and local authorities. From the perspective of a corporation such
as BellSouth, these requests are troubling because if such a list were released
publicly, whether through a FOIA request or through accidental disclosure, it
could provide terrorists with a road map directing them to our most critical
locations." He added that BellSouth was also concerned about third party
liability, antitrust liability, and giving information to its competitors.
He continued that "With respect to FOIA, many companies are hesitant to
voluntarily share sensitive information with the government because of the
possible release of this information to the public. BellSouth currently shares
cyber-related intrusion information with the Telecom Information Sharing and
Analysis Center -- the Telecom ISAC -- located within the NCC. However,
because of the concerns just noted, the information sharing is done on a limited
basis, within trusted circles, and strictly within a fashion that will eliminate
any liability or harm from FOIA requests for BellSouth information. This is
neither maximally efficient nor effective."
Smith concluded that "We also support Section 204 which provides an
important FOIA exemption for information regarding infrastructure and other
vulnerabilities that is provided voluntarily. Finally, we support the FOIA and
antitrust protections embodied in H.R. 2435,
the Cyber Security Information Act."
Guy Copeland of CSC stated that "sharing information about corporate
information security practices is inherently difficult. Companies are
understandably reluctant to share sensitive proprietary information about
prevention practices, intrusions, and actual crimes with either government
agencies or competitors. Information sharing is a risky proposition with less
than clear benefits. No company wants information to surface that they have
given in confidence, and that may jeopardize -- through misunderstanding or
misperception -- their market position, strategies, customer base, investor
confidence or capital investments, and certainly no company wants information to
surface that could aide terrorists or criminals."
Copeland added that "Government agencies seek detailed data about computer
attacks for the purposes of better law enforcement, earlier detection, and the
promotion of best practices in government and industry. Today, however,
corporate counsels advise their clients not to share voluntarily the details of
computer attacks with government agencies because the risk that such data could
ultimately be divulged through the Freedom of Information Act (FOIA) -- even
over the agency’s objections -- is unacceptably high."
The fourth panel also included two witnesses who testified in opposition to the
FOIA exemption. David Sobel,
General Counsel of the Electronic Privacy
Information Center (EPIC), testified that "Section 204 would cast a
shroud of secrecy over one of the Department of Homeland Security's critical
functions, removing any semblance of meaningful public accountability. If
Section 204, or a similar secrecy provision, is enacted, the public will be
unable to hold the new Department accountable should it fail to make effective
use of information it obtains. ``What did DHS know and when did it know it?´´
is a question that will go unanswered."
Sobel is an experienced, aggressive and successful FOIA litigator who has
obtained records pertaining to carnivore, CALEA, and other technology related
topics.
He also stated that "It should not go unnoticed that we are discussing the
desire of private companies to keep secret potentially embarrassing information
at a time when the disclosure practices of many in the business world are being
scrutinized. If a company is willing to fudge its financial numbers to maintain
its stock price, what assurance would we have that it was not hiding behind a
``critical infrastructure´´ FOIA exemption in order to conceal gross
negligence in its maintenance and operation of a chemical plant or a
transportation system?"
During the question and answer session Sobel stated that he knows of no cases
where information useful to terrorists has been divulged as a result of a FOIA
response. He added that the asserted problem is "purely hypothetical".
BellSouth's Smith responded that the reason that there have been no such cases
is that companies like BellSouth are withholding such information from the
government.
Few members of the Subcommittee were present to hear any part of the testimony
of the contentious fourth panel. Only Rep.
Ed Whitfield (R-KY), Rep. Richard Burr
(R-NC), and Rep. Peter Deutsch
(D-FL) participated.
The third panel of witnesses was a group of government witnesses. They generally
agreed that information sharing between government entities, and between
government and industry, needs to be improved. However, they did not endorse
creating a new FOIA exemption for this purpose, or an antitrust exemption.
See, prepared testimony of Samuel
Varnado (Director, Infrastructure and Information Systems Center, Sandia
National Laboratories), Donald
Cobb (Associate Director for Threat Reduction, Los Alamos National
Laboratory), Robert
Dacey (Director, Information Security Issues, General Accounting Office), John
Tritak (Director, Critical Infrastructure Assurance Office, Department of
Commerce), and James
McDonnell (Director, Energy Security and Assurance Program, Department of
Energy).
On other issues, Rep. Heather Wilson
(R-NM) stated that the research and development provisions in the bill are weak.
She elaborated that the U.S. needs to "leverage our technological
superiority" to successfully fight terrorism. Rep. Bart Stupak (D-MI), a former police
officer, commented on the chain of command of the proposed Department of
Homeland Security. He stated that there needs to be "vertical
authority", rather than the "horizontal chain of command" as the
bill is currently written. He added that "I don't want merely a shuffling
of chairs at the table."
Senate Subcommittee Holds Hearing on Identity Theft7/9. The Senate Judiciary
Committee's Subcommittee on Technology, Terrorism, and Government
Information held a hearing on S 2541,
the Identity Theft Penalty Enhancement Act of 2002. Sen. Dianne Feinstein (D-CA), who is the
Chairman of the Subcommittee, and the sponsor of the bill, has held repeated
hearings on identity theft.
See, prepared
testimony of Howard Beales, Director of the Federal
Trade Commission's (FTC) Bureau of Consumer Protection, prepared
testimony of Dan Collins, Deputy Associate Attorney General, and prepared
testimony of Dennis Lormel, Section Chief of the FBI's Terrorism Financial
Review Group.
FCC Files Petition for Rehearing in USTA v. FCC
7/9. The Federal Communications Commission
(FCC) filed a petition for
rehearing en banc [PDF] with the U.S.
Court of Appeals (DCCir) in USTA
v. FCC, in which a three judge panel overturned the FCC's
unbundling order and line sharing order.
The DC Circuit issued its opinion
on May 24, 2002 granting the petitions for review of the U.S. Telecom Association (USTA) and incumbent
local exchange carriers (ILECs). See, 290 F.3d 415.
The USTA and ILECs challenged the FCC's order requiring ILECs to lease a variety
of unbundled network elements to competitive local exchange carriers (CLECs).
They also challenged an FCC line sharing order that requires ILECs to lease to
CLECs only a portion of local copper loops, rather than the whole line, for the
purpose of offering DSL service. The Appeals Court granted both petitions. It
remanded both rules to the FCC for further proceedings. While the ILECs
prevailed, the FCC already has underway a proceeding in which it is examining
its unbundling rules.
The FCC wrote in its request for rehearing that this case is of "national
importance to the FCC's ongoing implementation of the 1996 Act's local
competition provisions". It asserted two errors. First, "the panel's
decision is, at a minimum, fundamentally in tension with recent and pertinent
Supreme Court authority dealing with closely related substantive requirements of
the 1996 Act. Less than two weeks before the panel issued its decision in this
case, the Supreme Court, in Verizon Telephone Cos. v. FCC, 122 S.Ct. 1646
(2002) ("Verizon"), had affirmed the FCC's "TELRIC"
methodology for determining the cost-based prices that incumbent LECs may charge
new competitive LECs for access to the unbundled network elements ("UNEs")
that are the subject of this case." See, Verizon
v. FCC [104 pages in PDF], May 13, 2002.
Secondly, the FCC wrote that "the panel's decision also requires rehearing
because it can be read to establish, on the basis of a misreading of the Supreme
Court's decision in AT&T Corp. v. Iowa Utilities Board, 252 U.S. 366
(1999), an unwarranted restriction on the FCC's implementation of the Act's
network element provisions that is, at a minimum, in tension with other
provisions of the 1996 Act."
Walter McCormick, P/CEO of the USTA stated in a release that
"We are disappointed that the FCC has filed for a rehearing since it will
further delay the Commission from moving forward with its Triennial Review, in
which it is already looking at the questions that the court has directed it to
consider. Unfortunately, any delay in achieving final rules for the issues
raised in the Triennial Review will further postpone the telecom industry’s
economic recovery."
Bush Gives Speech on Corporate Responsibility
7/9. President Bush gave a speech
in New York City regarding financial crimes and corporate responsibility. He
also signed an executive
order creating a new Corporate Fraud Task Force. The President proposed
longer prison terms for corporate fraud and more funding and authority for the Securities and Exchange Commission (SEC).
Bush stated that "by executive order, I create a new Corporate Fraud Task
Force, headed by the Deputy Attorney General, which will target major accounting
fraud and other criminal activity in corporate finance. The task force will
function as a financial crimes SWAT team, overseeing the investigation of
corporate abusers and bringing them to account." The task force would
include several top Department of Justice officials, the U.S. Attorneys whose
districts include major financial markets, and the heads of the SEC, Federal Communications Commission (FCC), Commodities Futures Trading Commission (CFTC), Federal Energy Regulatory Commission (FERC), and
Treasury Department.
The task force would "provide direction for the investigation and
prosecution of cases of securities fraud, accounting fraud, mail and wire fraud,
money laundering, tax fraud based on such predicate offenses, and other related
financial crimes committed by commercial entities and directors, officers,
professional advisers, and employees thereof".
Bush stated that "I'm also proposing tough new criminal penalties for
corporate fraud. This legislation would double the maximum prison terms for
those convicted of financial fraud from five to 10 years."
Bush stated that "I ask Congress to strengthen the ability of SEC
investigators to temporarily freeze improper payments to corporate executives,
and to strengthen laws that prevent the destruction of corporate documents in
order to hide crimes."
He also stated that "The SEC should be able to punish corporate leaders who
are convicted of abusing their powers by banning them from ever serving again as
officers or directors of a publicly held corporation."
He also said that "Corporate officers who benefit from false accounting
statements should forfeit all money gained by their fraud." In addition, he
said that "My accountability plan also requires CEOs to personally vouch
for their firms' annual financial statements."
Bush stated that "I asked Congress four months ago for funding to place 100
new enforcement personnel in the SEC. And I call on Congress to act quickly on
this request. Today I announce my administration is asking Congress for an
additional $100 million in the coming year to give the SEC the officers and the
technology it needs to enforce the law."
FCC Chairman Michael Powell,
who will serve on the newly created task force, stated in a release
[MS Word] that "There is a severe capital crisis putting a tremendous
strain on the telecommunications industry. It is imperative to do everything
possible to restore investor confidence in this critical sector of the American
economy. I applaud the President's initiative, and the Commission stands ready
to offer its expertise to assist in the effort to investigate and prosecute
significant financial crimes and restore credibility to the market."
SEC Chairman Harvey
Pitt stated in a release
that "We are grateful for the President's unqualified support of our
request for an additional $100 million in our FY03 budget, in addition to $20
million in supplemental funding he approved three months ago, that now awaits
Congress's approval. These resources will enable us to hire additional needed
accountants, lawyers and other professionals for our enforcement and corporation
finance efforts, fully fund our merit based pay parity program and begin
implementing critical information technology projects directly related to
investor protection."
Rep. Billy Tauzin (R-LA), Chairman of
the House Commerce Committee,
stated in a release
that "What President Bush has laid out today is a tough minded, no nonsense
approach to meaningful corporate reforms that will go a long way in bolstering
public confidence in America's capital markets."
Sen. Paul Sarbanes (D-MD), Chairman of
the Senate Banking Committee, was
less impressed. He stated that "we intend obviously to continue to move
forward this week and we're hopeful we can complete this legislation (Sarbanes
bill) by the end of the week. We think we clearly need a statute; unfortunately
the President has not yet reached that point. But we think this legislation does
what has to be done. It creates an independent oversight board with respect to
the accounting profession. It separates auditing from certain consulting
services which create obvious conflicts of interest. It provides the resources
to the SEC. I am very disappointed that the President was not more forthcoming
on resources for the SEC in order to carry out its responsibilities. That’s a
relatively easy thing for the Administration to do, and I don't know why they've
been holding back from it over these many months. I mean -- they've made a small
request, but the SEC needs a real shot in terms of additional resources."
Sen. Patrick Leahy (D-VT), the Chairman
of the Senate Judiciary Committee,
used the occasion to tout his bill, S 2010,
the Corporate and Criminal Fraud Accountability Act of 2002, which his Committee
reported on April 25.
"I welcome the President to the urgent need to restore trust in our
markets, and I welcome his ideas. A few of them are very familiar. We invited
the President to join in this effort. For months, the White House declined that
invitation. Now that the President is part of this effort, we have the
opportunity to work together to achieve real reform," said Sen. Leahy in a release.
"Getting tough means criminal penalties, and getting tough is the aim of
the Corporate and Criminal Fraud Accountability Act, which Senator Daschle and I
offered today on the Senate floor."
FCC Announces Agenda for June 16 Meeting
7/9. The Federal Communications Commission
(FCC) announced the agenda for its open meeting at 9:30 AM on Tuesday, July 16,
2002.
CPNI. The FCC will consider a Third Report and Order and Third Further NPRM to
implement 47 U.S.C. § 222(c)(1), which requires customer approval before a
telecommunications carrier may use, disclose, or permit access to a customer's
confidential proprietary network information (CPNI). This is CC Docket Nos.
96-115 and 96-149.
Number Portability. The FCC will consider a MOO regarding the Verizon
Wireless petition for forbearance from the wireless local number portability
requirements. This is WT Docket No. 01-184 and CC Docket No. 95-116.
Public Safety Agency Communications. The FCC will consider a Fifth Report
and Order concerning the migration to 6.25 kHz spectral efficiency in the 700
MHz public safety band. WT Docket No. 96-86.
People and Appointments
7/9. Brian Gunderson was named Chief of Staff of the Office of the U.S. Trade Representative (USTR).
He was previously Chief of Staff to House Majority Leader Dick Armey (R-TX). He succeeds M.B.
Oglesby. See, USTR
release.
7/9. Robin Pence joined the Federal
Communications Commission (FCC) as Associate Director of the Office of Media
Relations (OMR). She previously worked for Sprint.
Before that she worked as press secretary for former Rep. Thomas Coleman (R-MO),
and as a press assistant to former Sen. Alfonse D'Amato (R-NY).
More News
7/9. The Office of the U.S. Trade Representative
(USTR) published a notice
in the Federal Register announcing that it is requesting comments on China's
compliance with the commitments it made in connection with its accession to the World Trade Organization (WTO), and that the
Trade Policy Staff Committee (TPSC) will hold a hearing on China's compliance on
September 18, 2002. The deadline to submit written comments is 12:00 NOON on
September 10. The deadline to request to testify is September 5. See, Federal
Register, July 9, 2002, Vol. 67, No. 131, at Pages 45580 - 45581.
7/9. The New Mexico Public Regulation
Commission (PRC) recommended to the Federal
Communications Commission (FCC) that Qwest
has satisfied the last of Section 271's 14 point
checklist. Qwest announced that it will file with the FCC its Section 271
application to provide in region interLATA service in the state of New Mexico
"within the next few weeks". See, Qwest
release.
Ebbers and Sullivan Refuse to Testify to House Committee
7/8. The House Financial Services
Committee held a hearing on financial accounting practices by WorldCom. Bernard Ebbers, former CEO of
WorldCom, and Scott Sullivan, former Chief Financial Officer, both appeared, but
refused to testify.
See also, prepared testimony in PDF of other witnesses: John Sidgmore
(new President and CEO of WorldCom), Bert Roberts
(Chairman of WorldCom), Melvin Dick
(former Senior Global Managing Partner, Technology, Media, and Communications
Practice, Arthur Andersen, former external auditor), and Jack Grubman
(telecommunications analyst at Salomon Smith Barney).
Sidgmore, who replaced Ebbers as CEO two months ago, discussed efforts by
WorldCom's new management. He also argued that "WorldCom is a key component
of our nation's economy and communications infrastructure. Both commercial and
national security interests rely upon WorldCom's operations continuing without
disruption." Moreover, he argued that "WorldCom's presence ensures
competition in the rapidly consolidating telecom industry. ... WorldCom is one
of the last hopes for America to realize the intended benefits of the 1996
Telecom Act."
WorldCom also submitted a revised
statement [7 pages in PDF] to the Securities
and Exchange Commission (SEC) on July 8. See also, Exhibit
1 [2.4MB in PDF], Exhibit
2 [202KB in PDF], Exhibit
3 [130KB in PDF], and Exhibit
4 [340KB in PDF].
FCC Receives Comments on Spectrum Policy
7/8. July 8 was the deadline to file comments with the Federal Communications Commission's (FCC) Spectrum Policy Task Force in response to
its request for comments on spectrum policy, including taking steps toward
market oriented allocation and assignment policies, interference, efficient use
of spectrum, public safety communications, and international issues. The
FCC has published nearly 50 comments in its web site.
See, FCC's Public
Notice [PDF] requesting comments. Reply comments are due by July 23. This is
FCC Docket No. 02-135. The FCC is operating on a short filing schedule in this
matter; it has denied several requests for extensions of time.
Jon Peha, Associate Director of
Carnegie Mellon University's Center for
Wireless and Broadband Networks, wrote in his comment
[PDF] that spectrum scarcity "is severely exacerbated by our spectrum
management policies".
Peha argued that "To alleviate the scarcity, we must find new methods to
allow and encourage efficient spectrum sharing; exclusivity can lead to
inefficiency. Today’s technology offers many ways to gain the efficiencies of
sharing without unacceptable interference." He continued that the FCC
"should expand use of market based mechanisms, and the Commission should
insure the availability of an unlicensed spectrum ``commons.´´ Taking either
one of these approaches to a simplistic extreme would be counterproductive, so
the Commission should make judicious use of both. There is no substitute for an
effective regulator."
He also stated that "Thanks to auctions, new licenses are assigned to those
who value them the most. It should similarly be easy for a license holder to
``sell´´ a license, where the post sale license holder has rights and
obligations that are identical to those of the previous license holder.
Similarly, a license holder might ``rent´´ the license for a limited time,
which obviously cannot extend beyond the expiration date of the license."
In contrast, the Consumer Federation of
America (CFA) submitted a comment
[40 pages in PDF] in which it argued that "Creating quasi property rights
in spectrum through auctions is exactly the wrong thing to do." This
comment railed against "media moguls and communications
conglomerates".
The CFA argued that "The auctioning of spectrum is likely to reinforce
existing market power. Dominant incumbents have the resources and the incentive
to win the bids to protect their existing market power or to capture economies
of scale and scope. In pursuing their interests, proprietary facility owners
restrict the use of communications networks suppressing innovation. It would be
the height of foolishness to create private ownership or control over the
spectrum where it does not exist, which would then invoke the newly minted
quasi-property rights to strangle the Internet." Rather, "the FCC
should rationalize current uses and expand the space for unrestricted use."
Meanwhile, the SETI (Search
for Extraterrestrial Intelligence), which uses radio telescopes to listen for
extraterrestrial broadcasting, also submitted a comment
[PDF]. SETI wants the FCC to "continue to preserve allocated portions of
the radio spectrum for exclusive use of passive scientific research" so
that it may continue to pursue "the question of whether other intelligent
species occupy our universe".
People and Appointments
7/8. Federal Communications Commission (FCC)
Commissioner Michael Copps
announced that Alexis Johns has been "detailed to his office"
to assist in handling media and consumer protection issues. She joined the FCC
in 1996, most recently working in the Competition Policy Division of the
Wireline Competition Bureau. Previously, she was an associate with the law firm
of Cooley Godward. Susanna Zwerling,
who is currently Commissioner Copps' Legal Advisor for media and consumer
protection issues, plans to leave the FCC upon completion of several pending
projects.
More News
7/8. The Agriculture Department's Rural
Utilities Service published a notice
in the Federal Register announcing its $20 Million pilot grant program for the
provision of broadband transmission service in rural America for fiscal year
2002. Applications for grants are due by November 5, 2002. See, Federal
Register, July 8, 2002, Vol. 67, No. 130, at Pages 45079 - 45083.
7/8. Federal Reserve Board Governor
Mark Olson gave a speech
in Madrid, Spain, titled "Financial Markets Regulation in the United
States". He stated that "Several common forces are influencing
financial services industries around the world. Perhaps most dominant is the
extraordinary leap forward in technology that has changed every facet of these
industries. The first major technological changes, almost forty years ago,
dramatically changed back office processing. In recent years, technological
improvements have changed the delivery of retail financial products to such an
extent that our traditional definitions of deposit gathering and lending are in
continual need of updating."
7/8. eBay and PayPal announced that eBay will acquire PayPal.
eBay operates an auction web site. PayPal facilitates online payments. eBay
stated in a release
that "eBay will acquire all of the outstanding shares of PayPal in a tax
free, stock for stock transaction using a fixed exchange ratio of 0.39 eBay
shares for each PayPal share. Based on eBay's stock price on July 5, 2002, the
acquisition is valued at $1.5 billion." It stated that the acquisition
"is subject to various stockholder, government and regulatory
approvals". PayPal "will continue to operate as an independent
brand". eBay also stated that "In view of the uncertain regulatory
environment surrounding online gaming, eBay plans to phase out PayPal's gaming
business after the transaction closes."